Doing Nothing on Tax Reform is Simply Not an Option

8 February 2016

This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia was published in The Australian Financial Review on 8 February 2016 under the title 'GST reform will fix progressive bracket creep'.

Leaving our tax system the way it is now is unproductive, unsustainable and ultimately unfair.

Doing nothing is simply not an option.

Here are the facts.

Bracket creep will see over 40 per cent of Australians tipping into the top two tax brackets by 2025 - a person earning $150,000 will be paying 11 per cent more tax within three years, and a person earning $36,000 a whopping 27 per cent more.

We'd better do something about that. And for those people at the lower incomes, we'd better do something about it now.

Our business taxes are some of the most uncompetitive in the world, adding to our already failing competitiveness. We've dropped from 15 to 21 in the world over the past six years, overtaken by New Zealand two years ago.

Twelve companies pay more than 30 per cent of all company tax at a time when those companies are under pressure from global economic forces. Twenty per cent of individuals pay 60 per cent of all personal income tax.

Our tax revenues are simply too volatile. Twenty billion dollars was wiped off last year's projected budget bottom line because commodity prices were lower than expected.

What does all this mean? Without stronger growth our living standards will gradually but surely start to decline. The big warning sign is already there, with income growth at its slowest in 50 years.

So the tax debate cannot afford to be limited to a simplistic fixation with one tax.

It has to be about how we organise the tax system to help grow the economy. This won't be achieved by changing one or two taxes, but by changing the mix of taxes to create incentives that drive productive, growth generating behaviour.

It must be about lowering the overall deadweight burden of taxation including the burden borne by families and by businesses so our economy grows faster.

This involves the total tax package - income tax relief, reducing the tax burden on businesses and investment, how the states fund crucial services and how we compensate people for any changes we make, for example to the GST.

Neither side of politics should have allowed the debate to be dominated by the GST.

The escalating scare campaign is a ticking time bomb that risks blowing up what this whole debate is really about. The GST may or may not be part of a tax package, but there is absolutely no value in talking about the GST in and of itself.

In our view, if the GST is not part of a total tax package, the nation's degrees of freedom to make a real impact on tax relief will be very limited. This is not just because the GST is a bigger potential tax base, but because it offers ongoing structural advantages for Australia in an increasingly competitive global economy.

I am concerned that tax reform runs the risk of being the latest victim of Australia's dysfunctional political debate, and every single Australian will be the loser as living standards decline.

We have two Premiers - Mike Baird and Jay Weatherill - who, along with the Prime Minister and Treasurer, have been trying to engage the community in a sensible, forward looking discussion about the role of the tax system in driving behaviours that will result in economic growth, job creation and improved living standards.

But we also have politicians who see the tax discussion as just another opportunity to score cheap political points, ignoring the fact that getting our tax system right is bigger than these political games - it's about the future of our country.

The community deserves the opportunity to hear all of the arguments, to see all the various tax mix options, to see independent analysis that sits behind those options and allows them to make an informed choice.

They also deserve to understand the impact of failing to fix our tax system, which the two Premiers, the Prime Minister and the Treasurer are trying to point out.

We have talked to nearly 40,000 people over the last few weeks through a large-scale teleconference facility. They understand that Australia has a problem, and they understand that fixing the tax system is part of addressing that problem. They want information about how the exercise can contribute to economic growth, job creation and fairness.

We spoke to many business people and working people who feel they just can't get ahead, no matter how hard they work. Every initiative they take is swallowed in incremental taxes.

So let's not fall back into the trap of ruling things in and out before we give people the opportunity to talk it through.

I can tell you they are well and truly ready to be treated with more respect.

As the core groups who participated in the National Reform Summit agreed, growing our economy must be the centre of all policy development, tax and fiscal policy are central to that, and we need politicians to leave everything on the table and give the community real choices.

All I can do is to urge those politicians who are genuinely focused on the national interest to hold firm and let the country weigh up the options and come to a decision on this.

My message to our elected representatives is this: at some point you will be responsible for dealing head on with the challenges and the opportunities we face as a country.

If you submit to short term, politically motivated decisions, you have put your own short-term ambitions ahead of the long-term national interest, and abandoned your fiduciary duties to the country.